HELOC draw for down payment?

searcher profile

March 27, 2024

by a searcher from The University of Texas at Austin - Red McCombs School of Business in Chicago, IL, USA

Does SBA allow for Buyer's to draw on a HELOC for some or all of their down payment on a business acquisition? Thanks in advance!

2
8
132
Replies
8
commentor profile
Reply by a lender
in United States
The short answer is yes; the SBA allows a draw on a HELOC for some or all downpayment toward the change of business ownership loan project.

The long answer is that every bank has its own credit policy guidelines. Some banks require a
secondary source of verifiable household income to be the source of the HELOC monthly payment, outside of the business income or owner-salary to be earned. Other banks don't require a secondary source of household income to make the HELOC monthly payment. I ran into this scenario recently. Two banks wanted the secondary source of verifiable income, while I sourced another bank that didn't require the secondary source, and we funded that transaction successfully.

Every deal presents different strengths and weaknesses. Hence, there is no hard-core yes or no here because of the constant changes to credit policies and appetites of each bank or non-bank lender.

Business buyers need to know where to go and or pivot quickly at a moment's notice since ETA-financed loan projects are time-sensitive.
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I agree with the above. The SBA used to require you to be able to support the home equity loan payment from another source of income outside of the business cash flow or salary you were taking. But this rule went away with the most recent updates to the SBA SOP. So long as you can evidence cash flow to support the home equity loan either personally or from the salary you will draw from the business, you can use it as equity.
commentor profile
+6 more replies.
Join the discussion